Colombia used to sell lot of products to Venezuela at high prices if one compares them with international prices. After Colombia faced a political issue with Venezuela in 2008-2009, her trade declined dramatically at point to reach 7th place in main colombia’s trade partners in 2011, Venezuela used to take the second place after USA. Nowadays Colombian government broadcast that Colombia-Venezuela trade is improving but the true is the other way around. Venezuela can get her imported commodities at lower prices at international market. This note shows eggs case, Colombia used to export high volumes of eggs to Venezuela but not anymore. How can Colombia be competitive at international marker?, by sure it is not enough to sign lot of Free Trade Agreement (FTAs) as government points out, the solution has to be linked to real opportunities for farmers and guerrillas deserters.
Author: Humberto Bernal,
Economist,
e-mail: zhumber@gmail.com
it can be download @ PDF
Colombia is signing lot of Free Trade Agreements (FTAs) as many countries do and she does not realize that we are poor in suppling commodities with high added value. The main products where Colombia has trade advantage are crude oil, coal, precious stones, coffee, flowers and bananas. Most of these commodities are natural resources, it means limited supply and low added value. Crude oil and coal exports shared with 65% of total colombian exports in 2011 and these 6 commodities pointed shared with 80% of total colombian exports exports in 2011.
Colombia is signing lot of Free Trade Agreements (FTAs) as many countries do and she does not realize that we are poor in suppling commodities with high added value. The main products where Colombia has trade advantage are crude oil, coal, precious stones, coffee, flowers and bananas. Most of these commodities are natural resources, it means limited supply and low added value. Crude oil and coal exports shared with 65% of total colombian exports in 2011 and these 6 commodities pointed shared with 80% of total colombian exports exports in 2011.
It will be difficult that Colombia supplies high added value products due to lack of productive programs (Colombia has these type of programs but they are bureaucratic job places), lack of fair credits (the interest rate is too high), and the most important a lack of government awareness about Colombia reality in economic topics and how to sort them. This note points out how Colombia is missing her eggs trade and government does not realize it. Colombia used to export at least 1,000 tonnes of eggs before 2009 as figure 1 shows. There was a peak in 2008 with 15,117 tonnes mostly exported to Venezuela, this country showed US$ exchange rate chaos in 2008 and it let businessmen use exports between Colombia and Venezuela to make profits through exchange rate differences, however Venezuela government realized it and stop it with high losses for Colombians speculators. If one takes out this 2008 outlier, Colombia showed eggs exports average of 1,750 tonnes per year between 2001 to 2009. After 2009 Colombia missed lot of eggs foreign trade market, the eggs exports reached 72 tonnes, 6 tonnes and 88 tonnes in 2010, 2011 and 2012(january to july) respectively, what bad for this economic sector.
Figure 1. Eggs exported by Colombia 2001-2012 (July)
(Tonnes)
Source: TradeMap.
This decline in eggs’ exports is due to Colombia missed Venezuela market in 2010 as figure 2 shows. Venezuela used to take the second place in main colombian’s exports partners after the United States but nowadays this country is on 7th place with 3.1% of total colombian exports in 2011. Venezuela is one of Colombia’s border countries and this country payed colombian exports at high prices if one compared them with international prices, for instance this country used to pay US$3,100 per tonne of eggs in 2008 while at international market the big suppliers such as Netherlands, Turkey, Poland and the United States charged between US$1,500 and US$2,000 per tonne of eggs.
Due political issues between Colombia and Venezuela in 2008-2009, Colombia’s eggs exports declined to reach 6 tonnes in 2011 and 88 tonnes in 2012 (january to july). Nowadays, the few eggs exported go to Ecuador as figure 2 shows, other border country. The worst thing is Ecuador is paying a high price for these eggs, US$4,600 per tonne in 2012, when this country realises that eggs are cheaper at international market (US$1,200 per tonne in 2011, this price is lower than years before prices), then Colombia will miss her total international eggs market !!!. Moreover it could be cheaper to Colombians imports eggs for local supply!!!, one can get a egg for US$0.16 at local market (egg-weight 55 grams) while at international market its cost at FOB prices is US$0.07.
Figure 2. Eggs exported by Colombia according to country of destination 2001-2012 (July)
(Share%)
Source: TradeMap.
This failure can be changed if Colombia led by central government makes real opportunities for farmers and guerrillas deserters. Eggs production does not require high knowledge, therefore with a bit of effort these people will bring eggs production at low prices to sell at international market. The main eggs importers are Germany, Iraq, Singapore and Belgium as figure 3 shows. Germany imported 407,255 tonnes of eggs in 2011, therefore there is market out there.
Figure 3. Main countries that import eggs in 2011
(Tonnes)
Source: TradeMap.
What about considering an alternative hypothesis? (actually what most probably did happened during those years): that pike in exports actually never existed.
ReplyDeleteYes, I know you have the data supporting that pike and the so called "export boom" Colombia had in that period. However, when you look closely at the social reaction after the political issue, you don't find massive protests for the closing of markets. Curious, right? Why not to protests massively when "we" are losing such a big market. What were those people who were affected doing after the closure?
Moreover, when you look at the unemployment rate in Norte de Santander, there was only a small increase, something surprising when you see the dramatic fall of exports, being eggs, as you mentioned, only an example of it. Again, what did those people start doing for a living?
The alternative hypothesis is this: those exports never existed. They were fictitious exports. A commonly used criminal scheme with money laundering purposes. You report that you are exporting so you have legitimized the procedure of dollars that you previously obtained by illegal means (drug trafficking being the most common). Obviously you need some state agencies to cooperate with that, but as some recent criminal investigations have shown, several state agencies were completely co-opted by the criminals. They say you are actually exporting, you pay a small bribe, and you get your illegal dollars legitimized.
So, I don't think this is a matter of actually "losing" markets and lack of support by the central government, but instead, the recovery of the state from the hands of criminal organizations that were fictitiously increasing the country amount of exports just as a scheme for money laundering and hiding from prosecution by the authorities.
Thank Julián for your inquiry. Of course there is a big problem with narcotics laundry as you pointed above and some firms can use eggs market and others such as gold or meat market to clean the narcotic's dollars as is pointed by media also. Nevertheless may point of view is still valid as my following arguments suggest:
ReplyDelete1. Venezuela used to be the second Colombia trade partner in trade after USA. Nowadays is the 7th in 2011.
Colombia exports (total commodities) to Venezuela US$1.2 billions at FOB prices in 2008, this value declined to reach US$563.1 millions at FOB prices in 2011. Therefore there was a big cost due to lack of attention of government public servants.
2. Venezuela realised that can get eggs for lower prices through the USA and Brazil instead to import them from Colombia.
Brazil exported 535 tonnes in 2010 when this country exported just 175 in 2009. The value to highlight is that Venezuela imported 7 tonnes and 6 tonnes of eggs in 2010 and 2011 from USA!!!. Therefore It will be difficult to Colombia recover eggs market.
3. Colombia produces eggs at many regions such as Cundinamarca, Risaralda, Cordoba, Santander, Antioquia, Valle del Cauca, Amazonas and so. If one looks at exports' certifications, these eggs come from these regions also. Therefore unemployment is few but in may regions, Colombia faces an unemployment rate of 10.9%, it is to high also.
4. Colombia government could pay attention to this type of issues to be more competitive at international markets if she wants to be out of natural resource dependence as crude oil and coal.
My conclusion is that this exports existed and they faced a huge decline between 2010 and 2012. I can complement my note with your appreciation on narcotic laundry issue.
Thanks for your point of view. Have a great week.
NOTE: This week that starts tomorrow is the release of Green Day fist album out of three called "UNO", not too bad is't it?. I am looking forward for your comments on twitter :) .
Thanks for your reply. I got your point. I am writing something on money laundering. As soon as I get, I'll let you know.
ReplyDeleteI am also looking forward to hearing UNO.
See you.